Satellite images and aerial images have different radiation attributes. Conclusions on aerial image compression effects
may not be applicable to satellite images. In this paper we study the effects of lossy compression on the digital terrain
model (DTM) derived from a selected stereo pair of SPOT-5 satellite images. The satellite images are compressed by the
Kakadu JPEG2000 compression software at the compression ratios of 2, 4, 6, and 8. The Imageinfo Pixelgrid V2.0
software is used as a DTM generator. The DTM results derived from original images are compared with that derived
from compressed images in terms of the mean error and the standard deviation. This paper's experiment indicates that
when the compression ratio rises to 4, both the DTM generation and the stereo observation by human will be affected
dramatically.